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InterviewsJuly 1 2013

Standard Chartered pushes further into Africa

Standard Chartered already has one of the largest African businesses among banks from outside the continent, but it still wants to increase its operations there substantially in the next few years. Diana Layfield, its chief executive for Africa, tells Paul Wallace how.
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Standard Chartered pushes further into Africa

Interest in Africa has surged in the past five years. Having long neglected the continent for being too risky and offering poor returns, international investors are today piling in, buying its companies, shares and bonds in their droves.

Although low yields in the developed world are playing their part, the chief reasons for this flocking to Africa are the continent's greater political stability and rapid economic growth. Africa’s gross domestic product is forecast by the African Development Bank to rise by 4.8% this year, well above the global average. The sub-Saharan part of the continent is expanding even more quickly, continuing a trend that has been in place for most of the past decade.

Established presence

All of this represents good news for Standard Chartered. Having operated in Africa for more than 150 years, it is one of the most active investment banks in the continent and has subsidiaries with full banking licences in 14 sub-Saharan states. Few other non-African lenders, aside from perhaps Barclays, BNP Paribas, Citi and Société Générale, can claim to have a similarly deep presence on the continent.

Diana Layfield, who has been Standard Chartered’s chief executive for Africa since 2011, says the continent’s economic buoyancy is leading to more business for banks. “What’s changed recently has been the global understanding of the prospects for Africa, and therefore the interest of our clients in Africa,” she says. “It absolutely is translating into banking opportunities, both in the wholesale and retail segments. If you look at data on the growth of banking sectors, particularly in the biggest markets, it’s very high growth and, moreover, it is multiples of GDP growth.”

Africa still has a long way to go, however. Reflecting the low base from which it is starting, the continent accounted for just 11% of Standard Chartered’s $6.9bn of pre-tax profits last year. India alone accounted for 10%.

While it may seem likely, given its medium-term outlook, that Africa’s contribution to the bank’s revenues and earnings will rise, Ms Layfield is careful not to overhype the prospects of that happening. “Given that Africa’s economies are growing and trade with other parts of the world is increasing, there is some chance that the Africa proportion will increase,” she says. “The group’s focus on Africa has intensified and we see it as a stronger source of growth for the future.”

Wholesale push

Standard Chartered did, however, recently tell investors it wanted to double its African business within five years and do so at above its overall rate of return.

To achieve that ambition, much of the growth will have to come from wholesale banking, which is by some way the biggest part of Standard Chartered’s African operations. This division contributed $1.1bn to the bank’s $1.6bn of operating income from the continent last year (it was the first time African wholesale banking had surpassed the $1bn mark).

Ms Layfield is optimistic about the future for corporate and investment banking in Africa. Standard Chartered’s four most lucrative wholesale markets – Nigeria, Ghana, Kenya and South Africa – are growing quickly. Revenues in the latter three increased by more than 20% in 2012.

This progress stems partly from the substantial investment taking place in Africa’s natural resources, which Standard Chartered, as the largest financier of oil and gas on the continent, and a leading backer of its mining projects, is making plenty of effort to exploit.

Areas of growth

Another promising area is infrastructure. Given the poor state of transport, logistic and energy networks across much of Africa, its needs are huge – some studies estimate that, to meet development targets, close to $100bn will have to be spent annually on infrastructure over the next decade.

Ms Layfield says that sheer deficit will lead to more projects and deals on the continent going ahead, and thus opportunities for banks to advise and finance investors. But she adds that while governments are getting better at using the private sector to develop their infrastructure – she points to the ongoing privatisations of power companies in Nigeria as a good example – many still lack feasible strategies. “One of the challenges that many African countries face is how to structure projects to make them financeable,” she says. “It’s something that not everyone has cracked yet.”

It is not just high commodity prices and the lack of infrastructure that are driving investment banking on the continent. Economic growth in recent years has been caused to a great extent by rising consumer demand among Africans, which is leading investors to target companies such as retailers, telecoms groups and manufacturers of consumer goods. “If you look at the research, growth in the next 10 years will overwhelmingly come from consumer businesses,” says Ms Layfield. “We are increasingly financing clients, whether multinationals or locals, that have consumer-facing businesses.”

Although Standard Chartered is a regular advisor on big-ticket transactions involving investments into or out of Africa, and is one of the main bookrunners on capital markets deals from the continent, much of the focus of its wholesale business is on transaction banking. This is picking up along with Africa’s trade with the rest of the world, not least Asia. Standard Chartered has managed to benefit thanks to its traditional strengths in trade finance and cash management, and it having an extensive Asian franchise. “We are the only bank to have a deep presence in Africa and Asia,” says Ms Layfield.

Retail banking investments

Standard Chartered’s attempts to double its African business will also hinge on whether it can further build its consumer banking operations. It plans to spend more than $100m on 110 new branches in the next three years, most of them in Ghana, Kenya and Nigeria, and hire about 900 sales staff. It is investing in mobile technology, too, as a way of making its distribution channels more efficient and easier for customers to access. In Kenya, it recently established a mobile research unit to create apps and products to be used throughout the continent.

Market share is important to Standard Chartered, and it is keen to emphasise its position as one of the top five lenders by assets in most of the African countries in which it operates (see table). Yet it is firmly aware of the dangers of expanding too quickly. In Nigeria, sub-Saharan Africa’s second biggest economy after South Africa and one of the few places where Standard Chartered is not a top-tier lender, it wants to build its business, but not at the expense of damaging its balance sheet or seeing its high profitability – its return on assets there in 2011 was 4.5% – drop.

“We’re not saying we would like to be the third biggest bank in Nigeria or anything like that, but we would like to be a bigger bank and grow our market share,” says Ms Layfield.

She adds that the bank has no intention of diverting from its traditional strengths. With consumer banking, it will continue targeting Africa’s ever-growing middle class, rather than trying to be a mass market lender. “We can effectively serve the middle classes and the higher end of the retail market,” says Ms Layfield. “Within Africa, we are likely to be an urban bank, rather than a rural one, given the types of products that we offer. What we are not is a rural community bank.”

Angola bound

Despite its already wide reach in Africa, Standard Chartered is still looking to enter new markets. It is considering applying for a licence in Mozambique, but its immediate priority is oil-rich Angola, the third largest economy in sub-Saharan Africa and one of the fastest growing globally. “We have submitted an application for a licence, and that now goes into the formal Angolan process,” says Ms Layfield. “We hope to hear before the end of this year as to exactly what the progress is.”

In line with a requirement to have a local partner, Standard Chartered has signed a 60:40 joint venture agreement with ENSA, a state-owned insurer, which will own the smaller share.

Standard Chartered already does offshore business with Angola’s state oil firm Sonangol and some of the international upstream companies working in the country, which include BP, Total and ExxonMobil. But a new law will soon make it compulsory for oil producers to pay their suppliers through the Angolan banking system, cutting the amount of business open to offshore banks. Ms Layfield says this influenced Standard Chartered’s decision to try and enter the Portuguese-speaking country. “Our oil and gas clients have indicated that they would like to work with us in Angola,” she says. “There’s a pull from them.”

Ms Layfield admits that banking in Africa is far from easy. While its economy may be thriving, it mostly lacks good infrastructure, corruption is rife in many countries and skilled staff are hard to come by owing to poor education systems. Moreover, competition among banks is increasingly stiff thanks to the rise of local lenders and the growing number of international ones looking to the continent.

However, she is not alone in believing that these problems are outweighed by the multitude of opportunities that are likely to emerge in the coming years as Africa’s economy and wealth grow. And Standard Chartered, with its distinct advantages of having long-standing and far-reaching ties to the continent and a footprint in Asia, is among the best positioned of the banks hoping to benefit.

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